16. EU-UK agreement (TCA)

• UK-EU Trade and Cooperation Agreement agreed 24 December 2020
• From 1 January 2021, TCA applied provisionally and came into force 1 May 2021
• Tariff-free, quota-free UK-EU trade
• Many new UK-EU trade barriers

Click here for summary of Brexit FactBase.

Overview

Summary

The UK and the EU announced the trade deal on 24 December 2020 and published the principal documents on 26 December 2020. The initial text was provisional and a ‘scrubbed’ version replaced it at the end of April 2021.

From 31 December 2020:

• the UK lost all rights and obligations of being an EU Member State
• its nationals and businesses no longer benefit from free movement of people, goods, services and capital
• the UK no longer contributed to the EU budget or benefited from EU funding programmes, policies and international (trade) agreements

From 1 January 2021, the new EU-UK relationship is very different to that of a Member State. It comprises a:

• trade agreement for free, fair, sustainable trade, with zero tariffs, zero quotas
• broad economic, social and environmental partnership
• new partnership for citizens’ security
• common governance framework to ensure a sound and lasting partnership

The Trade and Cooperation Agreement has provisions to ensure a level playing field and respect for fundamental rights. It also confers rights and obligations on the EU and the UK, ‘in full respect of their sovereignty and regulatory autonomy’. In EU terms, the TCA is an ‘Association Agreement’.

Click here for a summary of the main changes.

Territorial scope

Certain parts apply to the Crown Dependencies, the Channel Islands and Isle of Man. However there are no provisions for the UK’s Overseas Territories – a separate treaty is being negotiated with Gibraltar.

Northern Ireland remains subject to the provisions in the Withdrawal Agreement. This creates a customs and regulatory border between GB and NI (the ‘border in the Irish Sea’). The TCA does not govern trade in goods between the EU and NI, but goods entering NI from GB count as imports. There are facilitations for goods movements between GB and NI. And, in terms of services, NI is subject to UK rules.

Approval and scrutiny

For the EU

The TCA was treated as an EU-only agreement since it only covers areas under EU competence, either exclusively or shared with Member States (MS). The Commission chose Article 217 TFEU as the legal basis for the conclusion of the TCA. This required unanimous agreement in the Council and consent of the European Parliament.

1. Commission proposed to apply the Agreement on a provisional basis, for a limited period of time until 28 February 2021.
2. On 29 December, the Council of 27 Member States unanimously approved signature of the Agreement and its provisional application from 1 January 2021.
3. On 30 December in Brussels, the President of the European Council, Charles Michel, President of the European Commission, Ursula von der Leyen, signed the TCA.
4. European Parliament had been asked to give its consent by the end of February. However, on 10 February the Commission proposed an extension of the provisional application to 30 April, which required the approval of the European Council and the TCA Partnership Council.
5. As a last step, the Council adopted the decision on the conclusion of the Agreement and, on 28 April, the European Parliament approved it.

For the UK

1. Government published the European Union (Future Relationship) Bill on 29 December. The purpose of the Bill is to implement the provisions of the TCA, the Nuclear Cooperation Agreement and the Security of Classified Information Agreement in domestic law.
2. On 30 December the Bill passed the House of Commons with 521 votes to 73.
3. On 30 December 2020 in London, the Prime Minister, Boris Johnson, signed the agreements in London.
4. Late on 30 December, the House of Lords approved the Bill, which became law after receiving royal assent.

The government fast-tracked the implementation Bill through both houses. As a result, neither the Commons nor the Lords were able to scrutinise this very important legislation properly before approving it. Similarly, the devolved nations had no time to give their legislative consent.

MPs were asked to read the deal (published 26 December) and the Bill (available 29 December) in time to debate and vote on the Bill on 30 December.

The government chose not to apply the legislation provisionally to allow time for scrutiny (unlike the EU).  However, Parliament will still need to satisfy itself that the Bill’s provisions and delegated powers are appropriate. The Lords Select Committee on the Constitution recommended on 29 December that:

“the House considers how best to review the Trade and Cooperation Agreement, and conduct post-legislative scrutiny of the Bill to implement it, and to undertake such scrutiny at the earliest opportunity. The quality of such scrutiny will be an early and substantial test of a Parliament possessing a significant tranche of returned powers.”

The House of Commons Committee on the Future Relationship with the European Union, chaired by Hilary Benn, met on 29 December. The Committee published a useful high-level report on the contents of the deal. The Committee was dissolved on 16 January but reported on 21 January with recommendations for future parliamentary scrutiny of the TCA (see Governance section).

Sources:
House of Lords Select Committee on the Constitution, European Union (Future Relationship) Bill, 29 December 2020
House of Commons Committee on the Future Relationship with the European Union, The UK-EU future relationship: the Trade and Cooperation Agreement Report, together with formal minutes relating to the report. 29 December 2020
House of Commons Committee on the Future Relationship with the European Union, The shape of future parliamentary scrutiny of UK-EU relations, 21 January 2021

Principal documents

The package

The TCA is the main part of a package of agreements reached on 24 December 2020. The package includes several Joint Declarations on important issues for further cooperation such as financial services regulatory cooperation, subsidies, asylum, road hauliers and the declaration of adequacy decisions.

Following provisional application, the final agreements entered into force on 1 May 2021. Together with the Withdrawal Agreement, which includes the Northern Ireland Protocol, the TCA is now the basis for the relationship between the UK and the EU.

The principal final EU-UK agreements are:

• Withdrawal Agreement
• Trade and Cooperation Agreement
• Security of Information Agreement
• Civil Nuclear Agreement

The UK government published its summary of the December agreements here anof the Joint Declarations here.

The European Commission also published a set of complementary documents on 24 December:

• A new relationship, with big changes – Brochure
• A new relationship, with big changes – Overview of consequences and benefits
• Infographic – comparison with EU membership
• From the UK referendum to a new Trade and Cooperation Agreement – timeline

For those keeping score compared to the Political Declaration, the big omission is the chapter on Foreign Policy, Security and Defence. Civil protection and illegal migrations are also missing from Thematic Cooperation. Otherwise, the TCA covers most of the items listed in the Political Declaration.

However, the deal’s coverage is often thin. For example, there is important urgent work needed to secure equivalence on regulation for financial services and data adequacy.  There is also a need to negotiate mutual recognition agreements to reduce duplicate checks on certain traded goods.

Trade and Cooperation Agreement

The EU-UK Trade and Cooperation Agreement (TCA) has seven Parts and many annexes::

1. Common and institutional provisions
2. Trade, transport, fisheries and other arrangements
3. Law enforcement and judicial cooperation in criminal matters
4. Thematic cooperation
5. Participation in Union programmes, sound financial management and financial provisions
6. Dispute settlement and horizontal provisiosn
7. Final provisions

Scroll down for images of the full contents pages of the draft TCA. Within Part 2 on Trade, transport, fisheries and other arrangements, the main sections are:

1. Trade
   1. Trade in goods
   2. Services and investment
   3. Digital trade
   4. Capital movements
   5. Intellectual property
   6. Public procurement
   7. Small and medium-sized enterprises
   8. Energy
   9. Transparency
   10. Good regulatory practices and regulatory cooperation
   11. Level playing field and fair competition and sustainability
   12. Exceptions
2. Aviation
3. Road transport
4. Social security coordination and visas for short-term visits
5. Fisheries
6. Other provisions

Figure 16.1: TCA contents (December 2020 draft)

Governance

Governance of the TCA

An institutional framework will govern the TCA with binding dispute settlement and enforcement mechanisms. The framework covers the whole TCA as one agreement. The EU and UK parliaments may establish a Parliamentary Partnership Assembly as a forum for exchanging views on the arrangements, but with limited powers.

A Partnership Council (PC) governs the TCA, supervised by a UK minister and a European commissioner. This Council can make decisions that will bind both the UK and EU. Indeed, the PC has the power to decide to amend the TCA. However, its recommendations have no binding effect on the UK or the EU. David Frost is the UK co-chair of the PC. European Commission vice-president, Maroš Šefčovi, is the EU co-chair.

The PC’s deliberations may be open to the public or confidential, if the parties choose. The Council will spend half its time in London and half in Brussels. There will also be a secretariat, based in London and Brussels.

A Trade Partnership Committee assists the PC and supervises the work of the Trade Specialised Committees (see Figure 16.2).

• PC will have 19 Specialised Committees whose remits relate to specific chapters of the agreement.
• Four Working Groups assisting and supervised by Specialised Committees.
• UK and EU representatives will jointly chair each committee and working group.
• New committees and working groups may be established.

Parliamentary scrutiny

For legally binding decisions, the UK parliament will have a smaller role than it did for EU legislation. When the UK was an EU member, UK laws to implement EU directives had to go through the UK parliament, either as statutes or statutory instruments.  Under the TCA, the UK parliament only has the right to be “informed” of the decisions. This means that the UK parliament has less control than it had with EU membership.

The TCA obliges the EU and UK to consult “domestic advisory groups” and “civil society organizations” on the implementation of the TCA and any supplemental agreements. This includes non-governmental organisations, business and employer organisations, and trade unions. The EU and UK must “promote interaction between their respective domestic advisory groups, including by exchanging, where possible, the contact details of members of their domestic advisory groups.”

The UK and the EU have yet to determine the frequency of meetings and the membership of Committees. Please note that this could not be done until the European Parliament and member states had ratified the TCA.

The House of Commons Committee on the Future Relationship with the European Union, chaired by Hilary Benn MP, ceased to exist on 16 January. Its final report, published on 21 January, made recommendations for future parliamentary scrutiny of the TCA. Commenting on the report, Hilary Benn said:

The reports’s main practical ideas were:

• Parliament must be kept informed about the work being done in new bodies established under the TCA and the Withdrawal Agreement;
• Government should come forward with proposals for future scrutiny as soon as possible;
• Liaison Committee should be able to access papers relating to crucial UK-EU meetings;
• The new framework for inter-parliamentary relations should be established without delay;
• UK administrations should co-operate in implementing the new UK/EU relationship.

Figure 16.2: Institutional arrangements for the EU-UK TCA

Professor Simon Usherwood has created a further diagram that combines TCA governance with that of the Withdrawal Agreement (see Figure 16.3).

Figure 16.3: Governance architecture of the EU-UK relationship

Dispute resolution

The Specialised Committees (or the PC) are the first ports of call for dispute resolution.  If the Specialised Committee or the PC cannot resolve a dispute, they can refer it to an independent tribunal (convened for each dispute), which has to issue a ruling between 130 and 160 days after the date of establishing the panel.

Some disputes cannot be referred to the independent tribunal:

• fisheries
• return of cultural property
• small and medium-sized enterprises
• competition
• subsidy controls
• regulatory co-operation
• law enforcement cooperation
• security co-ordination.

Instead, the UK and the EU can use traditional trade remedies in the form of tariffs or suspend parts of the TCA. This may include cross-retaliation – suspension of unrelated areas of the agreement. There can also be retaliation under the TCA for breaches of the Withdrawal Agreement.

There is likely to be more secrecy over disputes than before. Dispute resolution and the arbitration process are subject to absolute and discretionary rules of confidentiality. With the ECJ, cases usually took place in open court. Now, dispute resolution can take place behind closed doors.

There are important changes in law and its applicability.  Decisions of the PC will only bind the UK and EU as a matter of international law. They do not apply to other legal persons (individuals or businesses) apart from rights to social security and, on the EU side, for criminal law. This also means that individuals and business have no legal redress under the treaty. The special EU legal regime, with its creation of rights enforceable by citizens and businesses ends for the UK. EU law will still influence what the Partnership Council can agree to, but in the background. The ECJ only has a role in relation to litigation over EU programmes. On these points, the TCA differs markedly from the Withdrawal Agreement.

Rebalancing

Rebalancing relates to the level playing field (LPF) provisions. If the EU feels that the UK (or vice versa) diverges enough from its new rules to cause a material impact on trade or investment, it is entitled to impose rebalancing measures. These could include tariffs and withdrawal of other benefits under the TCA.

There are non-regression clauses in the TCA but no obligation for the UK to increase standards in line with future changes in EU law for: labour, social standards, environment and sustainable development. However, the UK and EU make extensive commitments in the TCA to respect key regulatory principles across a wide range of areas, such as: state aid, labour and social standards, environment and sustainable development, taxation, consumer protection, intellectual property, public procurement, competition law and merger control. This is likely to constrain the ability to diverge.

There is a short time to implement rebalancing measures. For example, for significant changes in state aid, environment or employment law, which have material impacts on trade or investment, the complaining side has 19 days after notifying the other party to impose sanctions. Then it has 49 days if the other party refers the matter to the tribunal.

From 1 January 2025, either party may seek a review of certain aspects of the agreement if it believes that the other party has changed its own laws in a way that justifies a rebalancing of the TCA.

Termination and review

There are many ways in which the parties may terminate the TCA. Either party can give 12 months’ notice to terminate the agreement (and without cause). In addition, some sections of the TCA have time limits, such as the energy chapter (scheduled to terminate on 30 June 2026). Other chapters can be terminated at shorter notice than one year, such as those on aviation, road transport and fish (all nine months’ notice). Note that termination of the fish chapter automatically terminates the trade, aviation and road transport chapters.

Please note that it is not true that the whole TCA terminates automatically if the UK leaves the European Convention on Human Rights (ECHR). However, either side has the option to terminate the criminal law part if the UK or a Member State leaves the ECHR.

The TCA provides for a EU-UK review of the whole agreement every five years (from 1 January 2026). In addition, the Specialised Committees (such as for SPS) will be reviewing aspects within their remits on an ongoing basis and may propose TCA changes to the Partnership Council. There will also be a vote in Northern Ireland on the Protocol in 2025. There are elections in 2022 for the Northern Ireland Assembly and current (May 2021) polls show that Sinn Fein is likely to be the largest party.

Sources:
Institute for Government, UK–EU future relationship: the deal, 27 December 2020
FT, Brexit deal leaves much unchanged institutionally, 28 December 2020
Professors Barnard and Peers, Analysis 2 of the Brexit deal: EU/UK Trade and Cooperation Agreement – overview, 31 December 2020

Main changes

The European Commission’s information on the deal includes this comparison with EU membership which highlights the main changes.

Figure 16.4: Main changes in EU-UK relations

Detailed implications

Introduction

This section highlights some of the implications of the TCA. It draws on summaries of the TCA provided by the Commission and recent papers by various experts.

The main implication is economic damage through reduced UK-EU trade. The UK left the EU Customs Union and the Single Market on 31 December 2020, losing the benefits of frictionless trade with the EU. This will cause a dramatic drop in UK-EU trade (even with the TCA) and significant economic harm.

Much modern trade takes place through a complex global network of goods and services producers, who work together to create the final package for the consumer. Tariffs are one barrier but the trade barriers that matter more (and cost more) involve, for example, regulations or testing procedures, barriers to the movement of people providing services, restrictive rules of origin and infringement of intellectual property rights. Unfortunately, the TCA focuses on removing tariffs and quotas rather than other trade barriers. Mutual recognition and equivalence are the principal tools to reduce them.

The section draws out some highlights for:

• Trade in goods
  • Rules of origin
  • Automotive sector
• Trade in services
  • Financial services
• Digital trade and data adequacy
• Fisheries
• Professional qualifications
• Mobility and visas
• Social security and healthcare
• Air transport

Trade in goods

Exports £373 billion; of which, EU exports £170 billion (46%) – 2019 figures ONS

All imports from the UK by the EU are subject to customs formalities and must comply with import rules:

• Must meet all EU standards; and,
• Will be subject to regulatory checks and controls for safety, health and other public policy purposes.

The EU has mutual recognition agreements with other countries, but they do not feature in the TCA.  These avoid double testing of a product by both countries and cover sectors such as pharmaceuticals, machinery and toys, However, for the UK and the EU, each party does not formally regard checks on goods by the other as adequate.

Similarly, veterinary equivalence does not appear in the TCA. So it does not reduce or eliminate inspections on food products, which account for many of the checks on imports at entry. The EU has several such agreements with, for example, Canada and New Zealand which greatly reduce inspections.

Rules of origin

Tariff-free access under a preferential trade agreement depends on compliance with rules of origin (RoO). To be free from tariffs, exporters have to provide a ‘statement of origin’ that shows the product content originates mainly from the UK and EU.

Under the TCA, EU and UK traders have to meet RoO comparable to those that apply to EU and the UK trade with other trading partners. As a result, the rules and procedures are already familiar to some UK business operators but not to those that have traded exclusively within the EU, particularly SMEs. Restrictive or complicated RoO make it hard to certify products sourced from different countries.

The TCA includes mechanisms to facilitate compliance with RoO:

• In principle, UK and EU content should be treated equally as local content. In the jargon this is called ‘full bilateral cumulation’, which means traders can aggregate product costs and value added originating in the UK and EU.
• Exporters may self-certify the origin of the goods, making it easier for traders to prove product origin and reduce red tape.
• There is flexibility in documenting proof of origin during the first year. This should allow businesses to benefit from zero tariffs and quotas despite the short time between agreeing and implementing the TCA.

Understandably, a UK importer cannot simply import products from a non-EU country and ship them on to the EU tariff free. It can, in general, process and combine them with other UK and EU goods and ship the final product tariff-free, provided only a small proportion is non-local.

However, there is an important wrinkle in RoO that is causing serious problems in food supply chains. Goods that arrive in the UK zero tariff from the EU but are not altered in any way and re-exported to the EU do not count as UK-origin. As a result,  they face the full EU Common External Tariff on returning to the EU. Food and agricultural products attract some of the highest tariffs. This is emerging as a major issue for goods shipped to GB distribution hubs. They attract full EU import tariffs when they return to the EU and, as a result, suppliers are being forced to cancel the delivery of products to EU customers.

Automotive sector

Exports £42 billion; of which, EU exports £23 billion (55%) – 2019 figures SMMT UK Automotive Trade Report

Car manufacture is a good example of how trade in goods and services is inter-related in complex supply chains. According to Toyota, there are about 30,000 components that go into a modern car, coming from many suppliers and typically combined with services such as maintenance, financing and satellite navigation systems.

The serious implications for the sector are new non-tariff barrier costs and delays. The TCA creates big new burdens for auto makers on UK-EU trade: customs declarations, certification costs, audits to prove that RoO requirements are met, border delays disrupting just-in-time systems etc. These extra costa and delays may make UK car makers uncompetitive and less attractive to EU suppliers and customers.

Car exports to the EU will avoid tariffs if they have at least 55% local content – materials coming from the UK and the EU. There is full bilateral cumulation – UK and EU components count equally as local content. However, the TCA does not allow ‘diagonal cumulation’ with third countries like Japan, China and Turkey. Industry experts say this should allow most UK car makers to avoid tariffs on exports to the EU, unless they import high value components from outside the EU (and reduce the local content %). For electric cars, the 55% will be phased in over six years from 40% in 2021. This may be challenging if high-value parts, such as batteries, are imported from outside the EU.

Automotive firms also need clarity from the UK government on areas like data flows and the timescale for setting up UK regulatory agencies to take over work from their EU counterparts.

Trade in services

Exports £328 billion; of which, EU exports £131 billion (40%) – 2019 figures ONS

UK service suppliers lost their automatic right to offer services across the EU as of 1 January 2021.  The UK will no longer benefit from free movement of persons, free provision of services and freedom of establishment.

This means UK service suppliers no longer enjoy the ‘country-of-origin’ approach or ‘passporting’ whereby authorisation from one MS gives access to the whole EU Single Market. After 31 December 2020, if a UK business is authorised to export services to one MS, it can no longer assume it may export to any other. This means service exporters must look at the regulations in each MS in which they want to trade.

As a result, UK suppliers:

• May need to establish in the EU to continue operating (many already have moved business activity from the UK to the EU, for example in financial services).
• Must comply with the varying host-country rules of each Member State.

Financial services

Exports £63 billion; of which, EU exports £26 billion (41%) – 2019 figures (ONS – excludes insurance and pension activities)

As expected, there is little in the TCA that addresses financial services, despite it being a key UK export to the EU. Nevertheless, the UK and EU have said they aim to agree, by March 2021, a framework for regulatory cooperation. This will be done through a Memorandum of Understanding, which will be non-binding.

The EU has said that it is seeking a separate regulatory cooperation agreement outside the TCA. To grant equivalence, the EU requires further information from the UK, particularly in relation to potential UK regulatory divergence from the EU rules.

Even if the EU grants the UK regulatory equivalence it will not cover the same range of financial services activities as EU membership. For example, it will exclude core banking services such as lending, payments and deposit taking. Nor will it grant permanent access rights. The EU can withdraw equivalence determinations at short, 30 days’ notice. To date, the EU has only granted the UK temporary equivalence decisions for central counterparties (for 18 months) and settling Irish securities (for 6 months).

For its part, the UK has implemented a Temporary Permissions Regime to support EEA-based firms operating in the UK with a passport. (There is no equivalent EU-wide scheme for UK firms operating in the EU.) However, some MS, such as Ireland and Denmark, have established temporary permissions in specific financial markets for specific time periods.

Digital trade and data adequacy

The TCA provides a four- to six-month period to continue the exchange of private data flows for UK and EU companies. This gives time for the EU to grant the UK an “adequacy” decision that recognises British data protection standards as strong enough to allow EU citizens’ private information to flow freely to the UK. The FT reported that a senior EU official said the adequacy decision was likely in the “coming weeks”.

Fisheries

Exports £2.1 billion; of which, EU exports £1.4 billion (65%) – 2019 figures

From January 2021, the UK’s share of fishing quotas will increase by 25% of the value of the EU catch in UK waters. This will be phased in over the next five and a half years and applies to the UK’s Economic Exclusion Zone (EEZ). This will be worth approximately £140 million a year to the UK fishing industry by 2026. This excludes Norway’s share, which is yet to be fully negotiated.

The value of fish the UK takes in its own EEZ is unlikely to be more than 60% (it is currently about 48%). Foreign vessels which have traditionally fished in the UK’s 6-to-12-mile limit will continue to be allowed to do so.

The agreed quotas will set a new baseline in 2026. Thereafter the UK and the EU will negotiate annually the Total Allowable Catch for shared stocks. These negotiations will also cover access arrangements. The TCA assumes that the UK’s aggregate share will not increase after 2026., so the negotiation will focus on shares of different species of fish.

For fish exports, the UK will have tariff- and quota-free access to the EU market. However, exporting becomes less straightforward with new paperwork and SPS checks. These burdens may make UK exports unattractive to EU importers, who may find it easier to deal with EU suppliers.

Professional qualifications

As of 1 January, UK nationals and EU citizens with UK qualifications will need the relevant MS to recognise them. This will be done according to the MS rules for the qualifications of third-country nationals. For UK citizens, this applies irrespective of where they qualified.

When the UK was an EU member, UK and EU citizens with a UK qualification were allowed to supply services across the EU. This covered doctors, nurses, dental practitioners, pharmacists, veterinary surgeons, lawyers, architects and engineers. For the affected professions, certain individuals may no longer be able to deliver services in certain countries in the EU. Some professions, like management consulting, are not regulated and will not face this barrier.

The TCA envisages that the EU and UK may later agree mutual recognition of certain professional qualifications. This will be on a case-by-case basis and for specific professions. The UK may also reach separate bilateral agreements with individual MS.

The WA protects the mutual recognition of professional qualifications for UK citizens living in the EU, or EU citizens in the UK, before the end of the transition period.

Mobility and visas

Short-term business visits will be limited to 90 days in any 180-day period. The list of activities permitted on visa-free trips is limited and means that some professionals such as musicians, artists, performers and journalists are unlikely to benefit. Beyond this list, the activities permitted and visa requirements vary by MS.

Companies will need to track days (including non-work trips) spent in the EU to demonstrate that employees are within the 90-day limit. However, Covid-19 restrictions mean that travel from the UK to the EU is likely to be limited.

Northern Ireland is treated differently. As a result of Brexit Northern Ireland will follow EU rules for goods, and NI citizens will be eligible to work in the EU, and study and receive healthcare in the EU.

Social security and healthcare

The agreement contains a detailed protocol on social security co-ordination. One important point to note is that UK nationals travelling to the EU (and vice versa) will continue to have access to state-provided healthcare – often for free. Existing EHIC cards can be used until their expiry date or until the sub-council on social security decides what alternative documentation is needed

Air transport

Exports £18.6 billion; of which, EU exports £9.7 billion (52%) – 2019 figures

Under the TCA, air transport of passengers and cargo continues without quotas on capacity or frequency. For aviation safety, both sides recognise the validity of each other’s safety certificates and licences. However, as the UK is no longer part of the single market, UK airlines may no longer:

• Offer services between EU member states (for example, London-Frankfurt-Warsaw) or domestic services within them (e.g., Paris-Marseille). Many UK airlines have already set up subsidiaries in the EU to continue these services.
• Operate onward passenger services from EU member states to destinations in non-member states (e.g., London-Amsterdam-Bangkok).

UK and EU airlines can operate cargo services involving stops in the UK, the EU and third countries. However, they may only carry passengers on these routes where the UK government and an EU member state grant this freedom bilaterally and reciprocally.

Commercial practices, such as leasing aircraft, as well as blocked-space and code-share arrangements, which feature in many airline alliances or partnerships, continue. However, although UK carriers may lease aircraft with crews from UK or EU operators, EU carriers must only hire crews from EU operators.

Ownership

EU nationals must majority-own and control EU airlines, and UK nationals majority-own and control UK carriers. The TCA allows UK carriers to continue their operations provided that, on 31 December 2020, they were majority-owned by EU or EEA (or Swiss) interests, and held a valid operating licence. However UK nationals will need to own and control new UK airlines.

By allowing UK and/or EU/EEA/EFTA nationals ownership and control, the deal means affected UK airlines do not need to chang ownership structure (although many had already taken steps to do this).

Passenger rights

Flight passengers’ rights for claiming compensation for delayed or cancelled flights continue as they currently are but will now be paid in sterling not Euros.

Safety

There is less mutual recognition of safety approvals and certifications from 1 January 2021 than as an EU member.

The UK Civil Aviation Authority (CAA) ceased to be part of the European Air Safety Agency (EASA). Therefore, the CAA has assumed the licensing, certification, approval and inspection functions that EASA previously carried out. EASA is a powerful enforcement authority that carries out certification and inspection responsibilities on behalf of national aviation authorities. These include licensing pilots and flight crew, and certification of aircraft parts.

Existing EU or UK authorisations are recognised if they comply with ICAO. These include certificates of airworthiness and competency, and licenses which are valid and in force. However, mutual recognition of new safety certificates and licences, including for pilots, ended on 31 December 2020. The TCA includes a framework for future cooperation and establishes procedures for consultation between the EU and the UK on safety issues and ramp inspection. It also contains a process for the reciprocal acceptance of compliance with, for example, airworthiness, air traffic management, and personnel training.

The Specialised Committee on Air Transport will set out the terms and conditions to recognise each other’s compliance and certification practices. An annex, which covers airworthiness and environmental certification, sets out a process to recognise future design and environmental certificates.

Sources:
David Henig for Best for Britain, Towards a modern UK-EU trade relationship, Moving beyond the UK-EU Trade and Cooperation Agreement, December 2020
Institute for Government, UK–EU future relationship: the deal, 27 December 2020
UK in a Changing Europe, What does the Brexit trade deal mean for financial services? 27 December 2020
FT, EU member states begin process to approve Brexit trade deal, 26 December 2020
UK in a Changing Europe, What does the trade deal mean for fisheries? 27 December 2020
UK in a Changing Europe, The Brexit trade deal and automotive sector? 28 December 2020

Borders

Overview

The GB-EU border and implementing the Ireland/Northern Ireland Protocol remain big challenges. When it was clear that the UK government intended to leave the Customs Union and the Single Market, it was also plain that there would be a new UK-EU border. Some argue that this was known as early as January 2017. In late 2020, much still needed to be done and the government admitted that the UK’s new border arrangements would not be ready by 31 December.

The government published its Border Operating Model in July 2020, which was criticised as being too generic, and added more details in October 2020. The changes apply to goods including agri-food from 1 January 2021. The government added further details on 5 January 2021.

Inevitably, the impacts of Covid-19 mean government and business still need more time to build infrastructure, recruit staff and ensure new IT systems are up and running. The government is phasing in new border checks and paperwork between January and July 2021. This should reduce the initial burden on the 180,000 UK businesses who now have to complete customs declarations for the first time (estimated by HMRC). These businesses have never had to meet customs requirements because they previously traded freely with the EU27 on the same basis as within the UK.

The relationship between UK and NI and Ireland is covered by the Withdrawal Agreement. Adapting to the new Brexit restrictions at the GB-EU and GB-NI borders is crucial for goods trade. Similarly, those travelling to the EU and firms trading cross-border in services face new restrictions.

Great Britain – EU

The ‘Border Operating Model’ sets out how the GB-EU border will work. New features include:

• Goods Vehicle Management System (GVMS) – allows traders to file relevant paperwork to get approvals before crossing the border and avoid long delays.
  • Very important for ferry ports that rely on rapid, seamless movement of haulage between UK and EU without additional clearances.
  • Most GB-EU trade will not be able to use GVMS until July 2021, but the system was due to be used for GB-NI trade from January 2021.
  • GVMS was in development and was not tested until November 2020.
  • Government had fallbacks from 2019 no-deal plans, but if GVMS is not ready for the selected GB-EU traders expected to use it in January, the implications for GB-NI trade are unclear.
• Operation Brock aims to manage traffic flows in Kent and mitigate the inevitable disruption (revived from 2019 ‘no deal’ preparations).There is significant pressure to avoid unnecessary delays at Dover and Folkestone.
  • Operation Brock includes:
    • Large lorry parks in Kent.
    • New digital ‘Smart Freight Service’, intended to check if hauliers have the right paperwork before they can proceed, but has not been tested.
• Border infrastructure may be extended beyond ports like Dover to include places like Leicestershire, because of its proximity to East Midlands airport, the second largest freight airport in the UK after Heathrow.

Great Britain – Northern Ireland

For the EU, GB is simply a third country, which means NI becomes a high-risk channel for illicit or sub-standard imports. Strict border management systems are essential at the GB-NI border and inevitably disrupt trade.

Under the WA, goods moving from GB to NI must comply with EU law on customs and regulation. The Protocol on Ireland/Northern Ireland keeps NI in the EU’s single market for goods and the EU Customs Union, so that NI continues to apply EU rules as they relate to customs, trade, production and the regulation of goods. From 1 January 2021, NI trade across the Irish border and with other EU countries continued on the same terms as before: no customs procedures, infrastructure or regulatory checks on goods being exported to the EU, including across the Irish border.

At the GB-NI border, new UK-EU trade frictions occur. With the TCA, goods entering NI from GB, require:

• Import declarations and safety and security certificates;
• Export Health Certificates and SPS (sanitary and phytosanitary) checks – for animal and plant products.

In February 2020, Michael Gove, Chancellor of the Duchy of Lancaster, announced that the UK would be implementing full checks at the GB-NI border at the end of 2020. The government has also announced a new ‘Trader Support Service’ to help reduce the burden of new customs rules – which will include carrying out some paperwork on their behalf – but businesses in NI were still calling for more detail about how the GB-NI border would work.

It was unlikely that the Northern Ireland Protocol and the GB-EU border would be operational before the end of 2020. Representatives from the customs and logistics industry wrote to Michael Gove setting out serious reservations about the government’s lack of progress. The government faced enormous tasks to ensure the systems and necessary plans were in place, and to convince industry that they would be.

Looking to the future

The new agreement is underpinned by a regular programme of dialogue between the UK and the EU. This dialogue should form the basis for deeper cooperation on regulations to support trade, which will be central to developing the UK-EU relationship.

In its thoughtful paper, Best for Britain identifies ten priorities for the dialogue:

1. Secure data adequacy and deepen provisions on digital trade
2. Establish regulatory dialogues, starting with financial services, as part of financial services equivalence
3. Develop new trade rules for modern challenges, such as climate change, animal welfare and anti-microbial resistance
4. Maintain membership of European standardisation bodies
5. Reach Mutual Recognition Agreements to address testing of industrial goods, and veterinary equivalence for food products
6. Explore membership of major European regulatory bodies on issues such as aircraft safety (EASA)
7. Expand cumulation of rules of origin for preferential tariffs either with Japan or PEM (Pan-Euro-Mediterranean) countries
8. Reconsider UK participation in Erasmus
9. Re-establish mutual recognition of professional qualifications
10. Cooperate in renewing the global trade system

Sources:
David Henig for Best for Britain, Towards a modern UK-EU trade relationship, Moving beyond the UK-EU Trade and Cooperation Agreement, December 2020

Last updated on 28th January 2023 by Richard Barfield